Current & Recent Research at Penn Law

The Impact of the Durbin Amendment on Banks, Merchants, and Consumers (with Vladimir Mukharlyamov).

Date Published:

Forthcoming

Date Posted:

08/31/2018

Subjects:

Law and Business
Law and Economics

Keywords:

Banking and Finance
Consumer Protection Law
Economics
Law and Society

Abstract:

After the financial crisis, a host of new regulatory interventions focused on protecting consumers and reducing their costs for financial products. Some advocates voiced concern that direct price regulation was unlikely to help consumers, because sophisticated banks "whack-a-mole" regulatory losses. This paper studies this issue using the Durbin Amendment, which capped banks' interchange revenue. We find causal evidence that banks do offset losses by cutting back on other services: Durbin prompts banks to eliminate free-checking, and the availability of this product declines substantially, from 60 percent to 20 percent. We find little evidence that merchants whose interchange expense decreased post-Durbin passed through these savings. However, daily retail gasoline margins demonstrate price pass-through for gas retailers most helped by Durbin. Our results highlight an important case of financial regulation causing unintended consequences for consumer welfare.